Strategic Flexibility Highlighted in a Fast Changing Market

Domestic economic growth will continue to be hampered by the sluggish global economy in 2020. Private consumption growth will be limited, but economic stimulus measures including the higher national budget will provide further support to growth in 2020. CBRE expects national GDP to expand by 2.1% this year.

Further rate cut is unlikely given Fed’s reluctancy to cut their interest rate and Korean government’s plans to stabilize real estate market.

The number of new jobs added in 2020 is forecasted to be only 60-85% of last year’s total due to sluggish economy and aging population.

Office

Approximately 730,000 sq. m. of new Grade A office supply will be completed this year, an increase of almost 300% y-o-y. This will drive a short-term jump in vacancy in the CBD and YBD, where the bulk of new supply is concentrated, while also pushing up overall vacancy in Seoul.

The outlook for individual districts is mixed, with average effective rents in the CBD forecasted to slightly increase but those in the YBD expected to fall as large new supply comes on stream. In the GBD, the absence of new Grade A supply this year will ensure vacancy remains low and rents stable.

Retail

CBRE expects to see a more diverse range of store formats emerge this year as landlords and retailers seek to compete with online platforms. Large experiential stores, specialist stores, retail arcades and digital stores will become more prominent.

New retail destinations such as second tier high streets will remain sought after by retailers. The rental gap between landlords and tenants on traditional high streets will continue to narrow in 2020, with owners offering lower rents or shifting to a turnover rent system.

Traditional large formats such as shopping malls and hypermarts will continue to introduce various initiatives to boost sales, primarily by introducing new brands and redesigning floor plans.

Logistics

New logistics supply in 2020 is forecasted to rise to a record-high 2.0 million sq. m. GFA, the bulk of which will come on stream in the southern area of Icheon, Yongin, and Anseong. More new supply this year will consist of mixed developments comprising dry and cold facilities.

Although the situation varies according to the individual asset and location, newly completed logistics facilities are taking longer to fully lease up, primarily because of their large size as well as the current oversupply situation. Landlords are responding by offering longer rent-free periods, a previously uncommon practice.

Intense competition for prime logistics assets is pushing up prices and marginal yield compression is now being witnessed in the market. Experienced investors are now engaging in development projects and outbound logistics investment.

Investment

CBRE forecasts transaction volume to exceed KRW 10 trillion in 2020, a decline on the record high of KRW 16 trillion recorded in 2019 but a figure nevertheless on par with the five-year average.

Record low interest rates and global economic instability are likely to lead individual investors to focus on alternative asset classes, including real estate. REIT products are emerging as increasingly attractive investment options with the government introducing active measures such as tax benefits.

Investment interest in logistics facilities, data centres and rental housing is poised to grow further in 2020, supported by societal and economic shifts along.